Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Merge the OpenView Depth-of-Book Product Into TotalView, 27318-27322 [2017-12267]

Download as PDF 27318 Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–12265 Filed 6–13–17; 8:45 am] Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: BILLING CODE 8011–01–P Electronic Comments Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Merge the OpenView Depth-of-Book Product Into TotalView • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2017–053 on the subject line. Paper Comments mstockstill on DSK30JT082PROD with NOTICES • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2017–053. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2017–053, and should be submitted on or before July 5, 2017. VerDate Sep<11>2014 17:36 Jun 13, 2017 Jkt 241001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80891; File No. SR– NASDAQ–2017–054] June 8, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 26, 2017, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to merge the OpenView depth-of-book product into TotalView, and to amend the Exchange’s fees at Rules 7023 and 7026 to reflect the merger of these two products, as described further below. The Exchange has designated the proposed amendments to be operative on August 1, 2017. The text of the proposed rule change is available on the Exchange’s Web site at http://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the Exchange’s fees at Rules 7023 and 7026 to merge the OpenView depth-of-book product into TotalView. TotalView and OpenView TotalView, the Exchange’s complete depth data feed product for Nasdaqlisted securities, provides every eligible order at every price level for all Nasdaq members, as well as Net Order Imbalance information.3 OpenView— almost universally purchased in conjunction with Nasdaq’s other depthof-book products, TotalView and Level 2 4—provides the same information as TotalView for stocks listed on other exchanges. TotalView and OpenView may be purchased through monthly subscription fees or enterprise license fees. Different fee structures apply if purchasers opt to view TotalView or OpenView using an Enhanced Display Solution (‘‘EDS’’) or utilize the data in a non-display fashion using a Managed Data Solution (‘‘MDS’’). The current fees associated with TotalView and OpenView that will be affected by the proposed changes, set forth in Rules 7023 and 7026, are as follows: 1. Per Subscriber Fees. Monthly NonProfessional per Subscriber fees are $14 for TotalView,5 and $1 for OpenView.6 Monthly Professional Subscriber fees are $70 for TotalView,7 and $6 for OpenView.8 2. Professional Subscriber Fees for Non-Display Usage. The professional Subscriber fees for Non-Display Usage 3 Net Order Imbalance information provides data relating to buy and sell interest at the open and close of the trading day, in the context of an Initial Public Offering, and after a trading halt. 4 See Securities Exchange Act Release No. 79863 (January 23, 2017) 82 FR 8632 (January 27, 2017) (SR–NASDAQ–2017–004) (explaining that Level 2 will be retired as a separate product). 5 Nasdaq Rule 7023(b)(2)(A). 6 Nasdaq Rule 7023(b)(3)(A). 7 Nasdaq Rule 7023(b)(2)(B). Fees are for Display Usage, or for Non-Display Usage based upon indirect access. 8 Nasdaq Rule 7023(b)(3)(B). Fees are for Display Usage, or for Non-Display Usage based upon indirect access. E:\FR\FM\14JNN1.SGM 14JNN1 Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices based upon direct access set forth in Rule 7023(b)(4) allow for the purchase of all depth-of-book products, including TotalView, Level 2 and OpenView, for one fee.9 3. Enterprise License Fees. The enterprises [sic] license fees set forth in Nasdaq Rules 7023(c)(1) and (c)(2) allow for the purchase of TotalView and OpenView, and the enterprise license fees at 7023(c)(3) allow for the purchase of all three depth-of-book products, including TotalView, Level 2 and OpenView, under the same fee structure.10 4. Per Subscriber Fees for Enhanced Display Solutions. The monthly fee for Professional Subscribers using EDS under Rule 7026(a)(1)(B) is $74 for TotalView and Level 2 and $6 for OpenView. Non-Professional Subscribers of EDS pay the applicable TotalView, Level 2 or OpenView rates.11 5. Enhanced Display Solution Enterprise License. The EDS enterprise license set forth in Rule 7026(a)(1)(C) allows TotalView and Level 2 to be distributed to an unlimited number of Professional Subscribers for $70, and OpenView for $6. 6. Managed Data Solutions. Rule 7026(b) sets forth a fee structure for MDS that applies the same fees for the distribution of TotalView, Level 2 and OpenView. mstockstill on DSK30JT082PROD with NOTICES Proposed Changes The Exchange proposes to amend the fees at Rules 7023 and 7026 to merge OpenView into TotalView. In substance, the Exchange will combine all fees for TotalView and OpenView into a single sum, without increasing the total price of the two products, and make a number of conforming changes to delete specific references to OpenView. The specific fee changes to Rules 7023 and 7026 are as follows: 1. Per Subscriber Fees. Monthly NonProfessional per Subscriber fees will be changed from $14 for TotalView 12 and 9 The Rule 7023(b)(4) fees are based on the number of Subscribers; the fee structure allows a Subscriber to obtain any combination of TotalView, Level 2 and OpenView, or all three products, for the same per Subscriber fee. 10 The enterprise license fees set forth in Rules 7023(c)(1) and 7023(c)(2) are comprised of two components: An enterprise license fee and perSubscriber monthly fees. A Distributor may obtain any combination of TotalView, Level 2 and OpenView, or all three products, for the same enterprise license and per-Subscriber monthly fees under Rules 7023(c)(1) and (c)(2). The fee structure set forth in Rule 7023(c)(3) is an enterprise license fee without per-Subscriber monthly fees. A Distributor may obtain any combination of TotalView, Level 2 and OpenView, or all three products, for the enterprise license fee set forth in Rule 7023(c)(3). 11 Nasdaq Rule 7026(a)(1)(B). 12 Nasdaq Rule 7023(b)(2)(A). VerDate Sep<11>2014 17:36 Jun 13, 2017 Jkt 241001 $1 for OpenView 13 to $15 for TotalView, which will be redefined in current Rule 7023(a)(1)(C) to include OpenView data. Monthly Professional Subscriber fees will be changed from $70 for TotalView 14 and $6 for OpenView 15 to $76 for TotalView, which will include OpenView data. 2. Professional Subscriber Fees for Non-Display Usage. There will be no substantive change to the Professional Subscriber fees for Non-Display Usage set forth in Nasdaq Rule 7023(b)(4), which already allows for the purchase of all three depth-of-book products, including OpenView, TotalView and Level 2, under the same fee structure. Explicit references to OpenView will be deleted as a technical, conforming change. 3. Enterprise License Fees. There will be no substantive change to the enterprises [sic] license fees set forth in Nasdaq Rules 7023(c)(1), (c)(2) and (c)(3), which already allow for the purchase of depth-of-book products, including OpenView and TotalView,16 for the same fee. Explicit references to OpenView will be deleted as a technical, conforming change. 4. Per Subscriber Fees for Enhanced Display Solutions. The monthly fee for Professional Subscribers using EDS will be changed from $74 for TotalView and Level 2 and $6 for OpenView 17 to $80 for TotalView, which will include all OpenView data, and Level 2. NonProfessional Subscribers of EDS will continue to pay at the applicable TotalView or Level 2 rates.18 Explicit references to OpenView will be deleted as a technical, conforming change. 5. Enhanced Display Solution Enterprise License. The monthly professional subscriber fee for purchasers of an enterprise license with EDS will be changed from $70 for TotalView and Level 2 and $6 for OpenView 19 to $76 for TotalView, which will include all OpenView data, and Level 2. 6. Managed Data Solutions. There will be no substantive change to the fee structure for MDS set forth in Rule 7026(b), which already allows for the distribution of all three depth-of-book products, including OpenView, TotalView and Level 2, under the same fee structure. Explicit references to 13 Nasdaq Rule 7023(b)(3)(A). Rule 7023(b)(2)(B). Fees are for Display Usage, or for Non-Display Usage based upon indirect access. 15 Nasdaq Rule 7023(b)(3)(B). 16 Level 2 data is included under Nasdaq Rule 7023(c)(3). 17 Nasdaq Rule 7026(a)(1)(B). 18 Id. 19 Nasdaq Rule 7026(a)(1)(C). 14 Nasdaq PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 27319 OpenView will be deleted as a technical, conforming change. In addition to all of these changes, the definition of OpenView will be removed from the current Rule book at Rule 7023(a)(1)(B), and the data provided in OpenView will be added to the definition of TotalView currently in Rule 7023(a)(1)(C), which will be redesignated as Rule 7023(a)(1)(B). The proposed rule change will lower administrative costs and simplify the purchase of depth-of-book products, with no impact on fees for most customers. Almost all purchasers of depth products already purchase OpenView in conjunction with TotalView or Level 2, and prices will not change for these customers. Most of the limited number of customers purchasing TotalView or OpenView alone are in the process of phasing out the practice, and will not be materially affected by the proposed change. Depth-of-book customers that purchase TotalView and OpenView together have to manage separate reporting, billing and approvals for two products that they utilize as a single product. The resulting administrative burden applies to four separate categories of fees: (i) Non-Professional per Subscriber fees for TotalView 20 and OpenView; 21 (ii) Professional Subscriber fees for TotalView 22 and OpenView; 23 (iii) monthly fees for Professional and Non-Professional Subscribers using EDS; 24 and (iv) monthly subscriber fees for purchasers of an EDS enterprise license.25 The proposed change will lessen the administrative burden on these customers—representing the bulk of depth-of-book purchasers—while leaving fees and product quality unaffected. Nasdaq has engaged in discussions with Distributors that purchase OpenView without TotalView or Level 2—or TotalView or Level 2 without OpenView—and determined that this practice is being phased out. This practice had its origins before Nasdaq became an Exchange, when Nasdaq did not trade a significant number of securities listed on other exchanges. Now, Nasdaq routinely trades the securities of other exchanges, and the rationale for this practice is obsolete. As such, Nasdaq does not expect merging OpenView into TotalView to have a long-term impact on customers that are 20 Nasdaq Rule 7023(b)(2)(A). Rule 7023(b)(3)(A). 22 Nasdaq Rule 7023(b)(2)(B). 23 Nasdaq Rule 7023(b)(3)(B). 24 Nasdaq Rule 7026(a)(1)(B). 25 Nasdaq Rule 7026(a)(1)(C). 21 Nasdaq E:\FR\FM\14JNN1.SGM 14JNN1 27320 Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices already in the process of deciding whether to purchase either both products, or neither, because of fundamental changes in the economic environment. The proposed fee change—which leaves the total cost of OpenView and TotalView unchanged— is unlikely to alter that decision. No transition time is needed to merge OpenView into TotalView—they are already offered in a compatible formats [sic] and Distributors require no time to modify their systems to accommodate the change. The proposed fees are optional in that they apply only to firms that elect to purchase these products. The proposed changes do not impact the cost of any other Nasdaq product. mstockstill on DSK30JT082PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,26 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,27 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention in determining prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues and, also, recognized that current regulation of the market system ‘‘has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.’’ 28 Likewise, in NetCoalition v. Securities and Exchange Commission 29 (‘‘NetCoalition’’) the D.C. Circuit upheld the Commission’s use of a market-based approach in evaluating the fairness of market data fees against a challenge claiming that Congress mandated a costbased approach.30 As the court emphasized, the Commission ‘‘intended in Regulation NMS that ‘market forces, rather than regulatory requirements’ play a role in determining the market 26 15 U.S.C. 78f(b). U.S.C. 78f(b)(4) and (5). 28 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). 29 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). 30 See NetCoalition, at 534–535. 27 15 VerDate Sep<11>2014 17:36 Jun 13, 2017 Jkt 241001 data . . . to be made available to investors and at what cost.’’ 31 Further, ‘‘[n]o one disputes that competition for order flow is ‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. national market system, buyers and sellers of securities, and the brokerdealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution’; [and] ‘no exchange can afford to take its market share percentages for granted’ because ‘no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers’ . . . .’’ 32 The Exchange believes that the proposal to integrate Nasdaq TotalView and OpenView into a single depth-ofbook product is an equitable allocation of reasonable dues, fees or other charges. Almost all purchasers of Nasdaq depth-of-book products already treat TotalView and OpenView as a single, combined product, and the proposed changes will reduce administrative burden. Customers that do not currently purchase both products are already in the process of deciding whether to purchase either both products, or neither, and the proposed fee change—which leaves the total cost of OpenView and TotalView unchanged—is unlikely to alter that decision. The fees for TotalView and OpenView, like all proprietary data fees, are constrained by the Exchange’s need to compete for order flow, and are subject to competition from other products and among broker-dealers for customers. If Nasdaq is incorrect in its assessment of these markets, there are no barriers to entry for competitors with substantially similar products. The Exchange believes that the proposed fee changes are an equitable allocation because the fees appropriately reflect the value of depthof-market data to customers as well as industry practice in which most customers purchase the current versions of TotalView and OpenView concurrently. The proposed fee changes are not unfairly discriminatory because the Exchange will apply the same fee to all similarly-situated subscribers. inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. The question of whether the prices of depth-of-view products are constrained by competitive forces was examined in 2016 by an Administrative Law Judge in an application for review by the Securities Industry and Financial Markets Association of actions taken by Self-Regulatory Organizations.33 After a four-day hearing and presentation of substantial evidence, the administrative law judge stated that ‘‘competition plays a significant role in restraining exchange pricing of depth-of-book products’’ 34 because ‘‘depth-of-book products from different exchanges function as substitutes for each other,’’ 35 and, as such, ‘‘the threat of substitution from depth-of-book customers constrains their depth-of-book prices.’’ 36 In addition, the administrative law judge stated that ‘‘[s]hifts in order flow and threats of shifting order flow provide a significant competitive force in the pricing of . . . depth-of-book data.’’ 37 As such, Nasdaq’s depth-of-book fees are ‘‘constrained by significant competitive forces.’’ 38 As an example of the impact of market forces on the price of proprietary data, the Exchange recently lowered the Nasdaq Basic enterprise license fee for the distribution of certain information by broker-dealers from $350,000 to $100,000.39 B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In terms of 33 Securities Industry and Financial Markets Association, Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 (A.L.J. June 1, 2016). 34 Id. at 33. 35 Id. 36 Id. 37 Id. at 37. 38 Id. at 43. 39 See Securities Exchange Act Release No. 79456 (December 2, 2016) 81 FR 88716 (December 8, 2016) (SR–NASDAQ–2016–162) (fee decrease for an enterprise license for the distribution of Nasdaq Basic to Non-Professional and Professional Subscribers with whom the broker-dealer has a brokerage relationship). 31 Id. at 537. at 539 (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782–83 (December 9, 2008) (SR– NYSEArca–2006–21)). 32 Id. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 E:\FR\FM\14JNN1.SGM 14JNN1 Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices The proposed changes will integrate Nasdaq TotalView and OpenView into a single depth-of-book product. If the proposed product revisions are unattractive to market participants, it is likely that the Exchange will lose market share. Market forces constrain fees for TotalView, like all depth-of-book products, in three respects. First, all fees related to TotalView are constrained by competition among exchanges and other entities attracting order flow. Firms make decisions regarding depth-of-book products and other proprietary data based on the total cost of interacting with the Exchange, and order flow would be harmed by the supracompetitive pricing of any proprietary data product. Second, the prices of TotalView are constrained by the existence of substitutes that are offered, or may be offered, by entities that offer proprietary data. Third, competition among Distributors for customers will further constrain the cost of TotalView. mstockstill on DSK30JT082PROD with NOTICES Competition for Order Flow Fees related to TotalView are constrained by competition among exchanges and other entities seeking to attract order flow. Order flow is the ‘‘life blood’’ of the exchanges. Broker-dealers currently have numerous alternative venues for their order flow, including self-regulatory organization (‘‘SRO’’) markets, as well as internalizing brokerdealers (‘‘BDs’’) and various forms of alternative trading systems (‘‘ATSs’’), including dark pools and electronic communication networks (‘‘ECNs’’). Each SRO market competes to produce transaction reports via trade executions, and two FINRA-regulated Trade Reporting Facilities (‘‘TRFs’’) compete to attract internalized transaction reports. The existence of fierce competition for order flow implies a high degree of price sensitivity on the part of BDs, which may readily reduce costs by directing orders toward the lowest-cost trading venues. The level of competition and contestability in the market for order flow is demonstrated by the numerous examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TracECN, and the BATS exchanges. A proliferation of dark pools and other ATSs operate profitably with fragmentary shares of consolidated market volume. For a variety of reasons, competition from new entrants, especially for order execution, has VerDate Sep<11>2014 17:36 Jun 13, 2017 Jkt 241001 increased dramatically over the last decade. Each SRO, TRF, ATS, and BD that competes for order flow is permitted to produce proprietary data products. Many currently do or have announced plans to do so, including NYSE, NYSE Amex, NYSE Arca, the BATS exchanges, and IEX. This is because Regulation NMS deregulated the market for proprietary data. While BDs had previously published their proprietary data individually, Regulation NMS encourages market data vendors and BDs to produce proprietary products cooperatively in a manner never before possible. Order routers and market data vendors can facilitate production of proprietary data products for single or multiple BDs. The potential sources of proprietary products are virtually limitless. The markets for order flow and proprietary data are inextricably linked: A trading platform cannot generate market information unless it receives trade orders. As a result, the competition for order flow constrains the prices that platforms can charge for proprietary data products. Firms make decisions on how much and what types of data to consume based on the total cost of interacting with Nasdaq and other exchanges. Data fees are but one factor in a total platform analysis. If the cost of the product exceeds its expected value, the broker-dealer will choose not to buy it. A supracompetitive increase in the fees charged for either transactions or proprietary data has the potential to impair revenues from both products. In this manner, the competition for order flow will constrain prices for proprietary data products. Substitute Products The price of depth-of-book data is constrained by the existence of competition from other exchanges, such as NYSE and the BATS exchanges, which sell proprietary depth-of-book data. While a small number of highly sophisticated traders purchase depth-ofbook products from multiple exchanges, most customers do not. Because most customers would not pay an excessive price for TotalView when substitute data is available from other proprietary sources, the Exchange is constrained in its pricing decisions. Competition Among Distributors Competition among Distributors provides another form of price discipline for proprietary data products to ensure that fees are equitable, fair, reasonable and not unfairly discriminatory. If the price of TotalView PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 27321 were set above competitive levels, Distributors purchasing TotalView would be at a disadvantage relative to their competitors, and would therefore either purchase a substitute or forego the product altogether. In summary, market forces constrain the price of depth-of-book data such as TotalView through competition for order flow, competition from substitute products, and in the competition among vendors for customers. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 40 and subparagraph (f)(6) of Rule 19b–4 thereunder.41 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: 40 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 41 17 E:\FR\FM\14JNN1.SGM 14JNN1 27322 Federal Register / Vol. 82, No. 113 / Wednesday, June 14, 2017 / Notices Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2017–054 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. mstockstill on DSK30JT082PROD with NOTICES All submissions should refer to File Number SR–NASDAQ–2017–054. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2017–054, and should be submitted on or before July 5, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.42 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–12267 Filed 6–13–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change [Release No. 34–80762; File No. SR–DTC– 2017–007] The Exchange proposes to extend the operation of Penny Pilot Program through December 31, 2017. The text of the proposed rule change is provided below. (additions are in italics; deletions are [bracketed]) * * * * * Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify the DTC Settlement Service Guide To Make Technical Revisions To Clarify and Provide Enhanced Transparency With Respect to the Calculation and Adjustment of Required Participants Fund Deposits Correction In notice document 2017–11151, beginning on page 25038, in the issue of Wednesday, May 31, 2017, make the following correction: 1. On page 25041, in the first column, in the last sentence, ‘‘June 20, 2017’’ should read ‘‘June 21, 2017’’. [FR Doc. C1–2017–11151 Filed 6–13–17; 8:45 am] BILLING CODE 1301–01–D SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80883; File No. SR–CBOE– 2017–045] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Penny Pilot Program June 8, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 31, 2017, Chicago Board Options Exchange, Incorporated (the ‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a ‘‘non-controversial’’ proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b–4(f)(6) thereunder.4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b–4(f)(6). CFR 200.30–3(a)(12). VerDate Sep<11>2014 17:36 Jun 13, 2017 Jkt 241001 PO 00000 Frm 00099 * * * * * Rule 6.42. Minimum Increments for Bids and Offers May 24, 2017. 1 15 42 17 Chicago Board Options Exchange, Incorporated Rules Fmt 4703 Sfmt 4703 The Board of Directors may establish minimum increments for options traded on the Exchange. When the Board of Directors determines to change the minimum increments, the Exchange will designate such change as a stated policy, practice, or interpretation with respect to the administration of Rule 6.42 within the meaning of subparagraph (3)(A) of subsection 19(b) of the Exchange Act and will file a rule change for effectiveness upon filing with the Commission. Until such time as the Board of Directors makes a change to the minimum increments, the following minimum increments shall apply to options traded on the Exchange: (1) No change. (2) No change. (3) The decimal increments for bids and offers for all series of the option classes participating in the Penny Pilot Program are: $0.01 for all option series quoted below $3 (including LEAPS), and $0.05 for all option series $3 and above (including LEAPS). For QQQQs, IWM, and SPY, the minimum increment is $0.01 for all option series. The Exchange may replace any option class participating in the Penny Pilot Program that has been delisted with the next most actively-traded, multiply-listed option class, based on national average daily volume in the preceding six calendar months, that is not yet included in the Pilot Program. Any replacement class would be added on the second trading day following [January 1, 2017] July 1, 2017. The Penny Pilot shall expire on [June 30, 2017] December 31, 2017. (4) No change. . . . Interpretations and Policies: .01–.04 No change. * * * * The text of the proposed rule change is also available on the Exchange’s Web site (http://www.cboe.com/AboutCBOE/ * E:\FR\FM\14JNN1.SGM 14JNN1

Agencies

[Federal Register Volume 82, Number 113 (Wednesday, June 14, 2017)]
[Notices]
[Pages 27318-27322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-12267]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80891; File No. SR-NASDAQ-2017-054]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Merge the OpenView Depth-of-Book Product Into TotalView

June 8, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 26, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to merge the OpenView depth-of-book product 
into TotalView, and to amend the Exchange's fees at Rules 7023 and 7026 
to reflect the merger of these two products, as described further 
below. The Exchange has designated the proposed amendments to be 
operative on August 1, 2017.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Exchange's 
fees at Rules 7023 and 7026 to merge the OpenView depth-of-book product 
into TotalView.
TotalView and OpenView
    TotalView, the Exchange's complete depth data feed product for 
Nasdaq-listed securities, provides every eligible order at every price 
level for all Nasdaq members, as well as Net Order Imbalance 
information.\3\ OpenView--almost universally purchased in conjunction 
with Nasdaq's other depth-of-book products, TotalView and Level 2 \4\--
provides the same information as TotalView for stocks listed on other 
exchanges.
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    \3\ Net Order Imbalance information provides data relating to 
buy and sell interest at the open and close of the trading day, in 
the context of an Initial Public Offering, and after a trading halt.
    \4\ See Securities Exchange Act Release No. 79863 (January 23, 
2017) 82 FR 8632 (January 27, 2017) (SR-NASDAQ-2017-004) (explaining 
that Level 2 will be retired as a separate product).
---------------------------------------------------------------------------

    TotalView and OpenView may be purchased through monthly 
subscription fees or enterprise license fees. Different fee structures 
apply if purchasers opt to view TotalView or OpenView using an Enhanced 
Display Solution (``EDS'') or utilize the data in a non-display fashion 
using a Managed Data Solution (``MDS''). The current fees associated 
with TotalView and OpenView that will be affected by the proposed 
changes, set forth in Rules 7023 and 7026, are as follows:
    1. Per Subscriber Fees. Monthly Non-Professional per Subscriber 
fees are $14 for TotalView,\5\ and $1 for OpenView.\6\ Monthly 
Professional Subscriber fees are $70 for TotalView,\7\ and $6 for 
OpenView.\8\
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    \5\ Nasdaq Rule 7023(b)(2)(A).
    \6\ Nasdaq Rule 7023(b)(3)(A).
    \7\ Nasdaq Rule 7023(b)(2)(B). Fees are for Display Usage, or 
for Non-Display Usage based upon indirect access.
    \8\ Nasdaq Rule 7023(b)(3)(B). Fees are for Display Usage, or 
for Non-Display Usage based upon indirect access.
---------------------------------------------------------------------------

    2. Professional Subscriber Fees for Non-Display Usage. The 
professional Subscriber fees for Non-Display Usage

[[Page 27319]]

based upon direct access set forth in Rule 7023(b)(4) allow for the 
purchase of all depth-of-book products, including TotalView, Level 2 
and OpenView, for one fee.\9\
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    \9\ The Rule 7023(b)(4) fees are based on the number of 
Subscribers; the fee structure allows a Subscriber to obtain any 
combination of TotalView, Level 2 and OpenView, or all three 
products, for the same per Subscriber fee.
---------------------------------------------------------------------------

    3. Enterprise License Fees. The enterprises [sic] license fees set 
forth in Nasdaq Rules 7023(c)(1) and (c)(2) allow for the purchase of 
TotalView and OpenView, and the enterprise license fees at 7023(c)(3) 
allow for the purchase of all three depth-of-book products, including 
TotalView, Level 2 and OpenView, under the same fee structure.\10\
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    \10\ The enterprise license fees set forth in Rules 7023(c)(1) 
and 7023(c)(2) are comprised of two components: An enterprise 
license fee and per-Subscriber monthly fees. A Distributor may 
obtain any combination of TotalView, Level 2 and OpenView, or all 
three products, for the same enterprise license and per-Subscriber 
monthly fees under Rules 7023(c)(1) and (c)(2). The fee structure 
set forth in Rule 7023(c)(3) is an enterprise license fee without 
per-Subscriber monthly fees. A Distributor may obtain any 
combination of TotalView, Level 2 and OpenView, or all three 
products, for the enterprise license fee set forth in Rule 
7023(c)(3).
---------------------------------------------------------------------------

    4. Per Subscriber Fees for Enhanced Display Solutions. The monthly 
fee for Professional Subscribers using EDS under Rule 7026(a)(1)(B) is 
$74 for TotalView and Level 2 and $6 for OpenView. Non-Professional 
Subscribers of EDS pay the applicable TotalView, Level 2 or OpenView 
rates.\11\
---------------------------------------------------------------------------

    \11\ Nasdaq Rule 7026(a)(1)(B).
---------------------------------------------------------------------------

    5. Enhanced Display Solution Enterprise License. The EDS enterprise 
license set forth in Rule 7026(a)(1)(C) allows TotalView and Level 2 to 
be distributed to an unlimited number of Professional Subscribers for 
$70, and OpenView for $6.
    6. Managed Data Solutions. Rule 7026(b) sets forth a fee structure 
for MDS that applies the same fees for the distribution of TotalView, 
Level 2 and OpenView.
Proposed Changes
    The Exchange proposes to amend the fees at Rules 7023 and 7026 to 
merge OpenView into TotalView. In substance, the Exchange will combine 
all fees for TotalView and OpenView into a single sum, without 
increasing the total price of the two products, and make a number of 
conforming changes to delete specific references to OpenView. The 
specific fee changes to Rules 7023 and 7026 are as follows:
    1. Per Subscriber Fees. Monthly Non-Professional per Subscriber 
fees will be changed from $14 for TotalView \12\ and $1 for OpenView 
\13\ to $15 for TotalView, which will be redefined in current Rule 
7023(a)(1)(C) to include OpenView data. Monthly Professional Subscriber 
fees will be changed from $70 for TotalView \14\ and $6 for OpenView 
\15\ to $76 for TotalView, which will include OpenView data.
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    \12\ Nasdaq Rule 7023(b)(2)(A).
    \13\ Nasdaq Rule 7023(b)(3)(A).
    \14\ Nasdaq Rule 7023(b)(2)(B). Fees are for Display Usage, or 
for Non-Display Usage based upon indirect access.
    \15\ Nasdaq Rule 7023(b)(3)(B).
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    2. Professional Subscriber Fees for Non-Display Usage. There will 
be no substantive change to the Professional Subscriber fees for Non-
Display Usage set forth in Nasdaq Rule 7023(b)(4), which already allows 
for the purchase of all three depth-of-book products, including 
OpenView, TotalView and Level 2, under the same fee structure. Explicit 
references to OpenView will be deleted as a technical, conforming 
change.
    3. Enterprise License Fees. There will be no substantive change to 
the enterprises [sic] license fees set forth in Nasdaq Rules 
7023(c)(1), (c)(2) and (c)(3), which already allow for the purchase of 
depth-of-book products, including OpenView and TotalView,\16\ for the 
same fee. Explicit references to OpenView will be deleted as a 
technical, conforming change.
---------------------------------------------------------------------------

    \16\ Level 2 data is included under Nasdaq Rule 7023(c)(3).
---------------------------------------------------------------------------

    4. Per Subscriber Fees for Enhanced Display Solutions. The monthly 
fee for Professional Subscribers using EDS will be changed from $74 for 
TotalView and Level 2 and $6 for OpenView \17\ to $80 for TotalView, 
which will include all OpenView data, and Level 2. Non-Professional 
Subscribers of EDS will continue to pay at the applicable TotalView or 
Level 2 rates.\18\ Explicit references to OpenView will be deleted as a 
technical, conforming change.
---------------------------------------------------------------------------

    \17\ Nasdaq Rule 7026(a)(1)(B).
    \18\ Id.
---------------------------------------------------------------------------

    5. Enhanced Display Solution Enterprise License. The monthly 
professional subscriber fee for purchasers of an enterprise license 
with EDS will be changed from $70 for TotalView and Level 2 and $6 for 
OpenView \19\ to $76 for TotalView, which will include all OpenView 
data, and Level 2.
---------------------------------------------------------------------------

    \19\ Nasdaq Rule 7026(a)(1)(C).
---------------------------------------------------------------------------

    6. Managed Data Solutions. There will be no substantive change to 
the fee structure for MDS set forth in Rule 7026(b), which already 
allows for the distribution of all three depth-of-book products, 
including OpenView, TotalView and Level 2, under the same fee 
structure. Explicit references to OpenView will be deleted as a 
technical, conforming change.
    In addition to all of these changes, the definition of OpenView 
will be removed from the current Rule book at Rule 7023(a)(1)(B), and 
the data provided in OpenView will be added to the definition of 
TotalView currently in Rule 7023(a)(1)(C), which will be re-designated 
as Rule 7023(a)(1)(B).
    The proposed rule change will lower administrative costs and 
simplify the purchase of depth-of-book products, with no impact on fees 
for most customers. Almost all purchasers of depth products already 
purchase OpenView in conjunction with TotalView or Level 2, and prices 
will not change for these customers. Most of the limited number of 
customers purchasing TotalView or OpenView alone are in the process of 
phasing out the practice, and will not be materially affected by the 
proposed change.
    Depth-of-book customers that purchase TotalView and OpenView 
together have to manage separate reporting, billing and approvals for 
two products that they utilize as a single product. The resulting 
administrative burden applies to four separate categories of fees: (i) 
Non-Professional per Subscriber fees for TotalView \20\ and OpenView; 
\21\ (ii) Professional Subscriber fees for TotalView \22\ and OpenView; 
\23\ (iii) monthly fees for Professional and Non-Professional 
Subscribers using EDS; \24\ and (iv) monthly subscriber fees for 
purchasers of an EDS enterprise license.\25\ The proposed change will 
lessen the administrative burden on these customers--representing the 
bulk of depth-of-book purchasers--while leaving fees and product 
quality unaffected.
---------------------------------------------------------------------------

    \20\ Nasdaq Rule 7023(b)(2)(A).
    \21\ Nasdaq Rule 7023(b)(3)(A).
    \22\ Nasdaq Rule 7023(b)(2)(B).
    \23\ Nasdaq Rule 7023(b)(3)(B).
    \24\ Nasdaq Rule 7026(a)(1)(B).
    \25\ Nasdaq Rule 7026(a)(1)(C).
---------------------------------------------------------------------------

    Nasdaq has engaged in discussions with Distributors that purchase 
OpenView without TotalView or Level 2--or TotalView or Level 2 without 
OpenView--and determined that this practice is being phased out. This 
practice had its origins before Nasdaq became an Exchange, when Nasdaq 
did not trade a significant number of securities listed on other 
exchanges. Now, Nasdaq routinely trades the securities of other 
exchanges, and the rationale for this practice is obsolete. As such, 
Nasdaq does not expect merging OpenView into TotalView to have a long-
term impact on customers that are

[[Page 27320]]

already in the process of deciding whether to purchase either both 
products, or neither, because of fundamental changes in the economic 
environment. The proposed fee change--which leaves the total cost of 
OpenView and TotalView unchanged--is unlikely to alter that decision.
    No transition time is needed to merge OpenView into TotalView--they 
are already offered in a compatible formats [sic] and Distributors 
require no time to modify their systems to accommodate the change.
    The proposed fees are optional in that they apply only to firms 
that elect to purchase these products. The proposed changes do not 
impact the cost of any other Nasdaq product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\26\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\27\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \28\
---------------------------------------------------------------------------

    \28\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission 
\29\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\30\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \31\
---------------------------------------------------------------------------

    \29\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \30\ See NetCoalition, at 534-535.
    \31\ Id. at 537.
---------------------------------------------------------------------------

    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers' . . . .'' \32\
---------------------------------------------------------------------------

    \32\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Exchange believes that the proposal to integrate Nasdaq 
TotalView and OpenView into a single depth-of-book product is an 
equitable allocation of reasonable dues, fees or other charges. Almost 
all purchasers of Nasdaq depth-of-book products already treat TotalView 
and OpenView as a single, combined product, and the proposed changes 
will reduce administrative burden. Customers that do not currently 
purchase both products are already in the process of deciding whether 
to purchase either both products, or neither, and the proposed fee 
change--which leaves the total cost of OpenView and TotalView 
unchanged--is unlikely to alter that decision. The fees for TotalView 
and OpenView, like all proprietary data fees, are constrained by the 
Exchange's need to compete for order flow, and are subject to 
competition from other products and among broker-dealers for customers. 
If Nasdaq is incorrect in its assessment of these markets, there are no 
barriers to entry for competitors with substantially similar products.
    The Exchange believes that the proposed fee changes are an 
equitable allocation because the fees appropriately reflect the value 
of depth-of-market data to customers as well as industry practice in 
which most customers purchase the current versions of TotalView and 
OpenView concurrently. The proposed fee changes are not unfairly 
discriminatory because the Exchange will apply the same fee to all 
similarly-situated subscribers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    The question of whether the prices of depth-of-view products are 
constrained by competitive forces was examined in 2016 by an 
Administrative Law Judge in an application for review by the Securities 
Industry and Financial Markets Association of actions taken by Self-
Regulatory Organizations.\33\ After a four-day hearing and presentation 
of substantial evidence, the administrative law judge stated that 
``competition plays a significant role in restraining exchange pricing 
of depth-of-book products'' \34\ because ``depth-of-book products from 
different exchanges function as substitutes for each other,'' \35\ and, 
as such, ``the threat of substitution from depth-of-book customers 
constrains their depth-of-book prices.'' \36\ In addition, the 
administrative law judge stated that ``[s]hifts in order flow and 
threats of shifting order flow provide a significant competitive force 
in the pricing of . . . depth-of-book data.'' \37\ As such, Nasdaq's 
depth-of-book fees are ``constrained by significant competitive 
forces.'' \38\ As an example of the impact of market forces on the 
price of proprietary data, the Exchange recently lowered the Nasdaq 
Basic enterprise license fee for the distribution of certain 
information by broker-dealers from $350,000 to $100,000.\39\
---------------------------------------------------------------------------

    \33\ Securities Industry and Financial Markets Association, 
Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 (A.L.J. June 
1, 2016).
    \34\ Id. at 33.
    \35\ Id.
    \36\ Id.
    \37\ Id. at 37.
    \38\ Id. at 43.
    \39\ See Securities Exchange Act Release No. 79456 (December 2, 
2016) 81 FR 88716 (December 8, 2016) (SR-NASDAQ-2016-162) (fee 
decrease for an enterprise license for the distribution of Nasdaq 
Basic to Non-Professional and Professional Subscribers with whom the 
broker-dealer has a brokerage relationship).

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[[Page 27321]]

    The proposed changes will integrate Nasdaq TotalView and OpenView 
into a single depth-of-book product. If the proposed product revisions 
are unattractive to market participants, it is likely that the Exchange 
will lose market share.
    Market forces constrain fees for TotalView, like all depth-of-book 
products, in three respects. First, all fees related to TotalView are 
constrained by competition among exchanges and other entities 
attracting order flow. Firms make decisions regarding depth-of-book 
products and other proprietary data based on the total cost of 
interacting with the Exchange, and order flow would be harmed by the 
supracompetitive pricing of any proprietary data product. Second, the 
prices of TotalView are constrained by the existence of substitutes 
that are offered, or may be offered, by entities that offer proprietary 
data. Third, competition among Distributors for customers will further 
constrain the cost of TotalView.
Competition for Order Flow
    Fees related to TotalView are constrained by competition among 
exchanges and other entities seeking to attract order flow. Order flow 
is the ``life blood'' of the exchanges. Broker-dealers currently have 
numerous alternative venues for their order flow, including self-
regulatory organization (``SRO'') markets, as well as internalizing 
broker-dealers (``BDs'') and various forms of alternative trading 
systems (``ATSs''), including dark pools and electronic communication 
networks (``ECNs''). Each SRO market competes to produce transaction 
reports via trade executions, and two FINRA-regulated Trade Reporting 
Facilities (``TRFs'') compete to attract internalized transaction 
reports. The existence of fierce competition for order flow implies a 
high degree of price sensitivity on the part of BDs, which may readily 
reduce costs by directing orders toward the lowest-cost trading venues.
    The level of competition and contestability in the market for order 
flow is demonstrated by the numerous examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TracECN, and the BATS exchanges. A proliferation of 
dark pools and other ATSs operate profitably with fragmentary shares of 
consolidated market volume. For a variety of reasons, competition from 
new entrants, especially for order execution, has increased 
dramatically over the last decade.
    Each SRO, TRF, ATS, and BD that competes for order flow is 
permitted to produce proprietary data products. Many currently do or 
have announced plans to do so, including NYSE, NYSE Amex, NYSE Arca, 
the BATS exchanges, and IEX. This is because Regulation NMS deregulated 
the market for proprietary data. While BDs had previously published 
their proprietary data individually, Regulation NMS encourages market 
data vendors and BDs to produce proprietary products cooperatively in a 
manner never before possible. Order routers and market data vendors can 
facilitate production of proprietary data products for single or 
multiple BDs. The potential sources of proprietary products are 
virtually limitless.
    The markets for order flow and proprietary data are inextricably 
linked: A trading platform cannot generate market information unless it 
receives trade orders. As a result, the competition for order flow 
constrains the prices that platforms can charge for proprietary data 
products. Firms make decisions on how much and what types of data to 
consume based on the total cost of interacting with Nasdaq and other 
exchanges. Data fees are but one factor in a total platform analysis. 
If the cost of the product exceeds its expected value, the broker-
dealer will choose not to buy it. A supracompetitive increase in the 
fees charged for either transactions or proprietary data has the 
potential to impair revenues from both products. In this manner, the 
competition for order flow will constrain prices for proprietary data 
products.
Substitute Products
    The price of depth-of-book data is constrained by the existence of 
competition from other exchanges, such as NYSE and the BATS exchanges, 
which sell proprietary depth-of-book data. While a small number of 
highly sophisticated traders purchase depth-of-book products from 
multiple exchanges, most customers do not. Because most customers would 
not pay an excessive price for TotalView when substitute data is 
available from other proprietary sources, the Exchange is constrained 
in its pricing decisions.
Competition Among Distributors
    Competition among Distributors provides another form of price 
discipline for proprietary data products to ensure that fees are 
equitable, fair, reasonable and not unfairly discriminatory. If the 
price of TotalView were set above competitive levels, Distributors 
purchasing TotalView would be at a disadvantage relative to their 
competitors, and would therefore either purchase a substitute or forego 
the product altogether.
    In summary, market forces constrain the price of depth-of-book data 
such as TotalView through competition for order flow, competition from 
substitute products, and in the competition among vendors for 
customers.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \40\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\41\
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \41\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 27322]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2017-054 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2017-054. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-054, and should 
be submitted on or before July 5, 2017.
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    \42\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-12267 Filed 6-13-17; 8:45 am]
 BILLING CODE 8011-01-P